On January 17, the Polygon network announced the EIP-1559 upgrade, which is also called the London Hardfork. According to the network developers, EIP-1559 seeks to eliminate the first-price auction used to calculate fees. The upgrade introduces a base fee for transactions and a priority fee to allow faster processing. The EIP-1559 upgrade will also pave the way for the real-time burning of MATIC tokens, thereby controlling the deflationary effect.

Of course, the burning mechanism introduced by EIP-1559 was expected to have a bullish effect on Polygon’s token, MATIC. However, MATIC/USD continued its slide, falling from a high of $2.44, to a low of $2.17 on the same day.

Why MATIC/USD Fell Amid EIP-1559 Upgrade

Reports of the long-awaited EIP1-1559 upgrade came as early as January 12, with traders having already factored it into the token’s price before the upgrade date. We definitely need to examine the impact of the burning mechanism of MATIC beyond the short term. The burning mechanism will be bullish for MATIC/USD, with the long-term projection being an upside for the token.

Currently, we view the bearish move on MATIC/USD as being connected to the weaknesses in cryptocurrencies as a whole. At the time of writing, leading cryptocurrencies Bitcoin and Ethereum were down by 2.23% and 3.80% respectively in the previous 24 hours, with most tokens flashing red lights. MATIC/USD buyers are also taking a break after the token hit an all-time high above $2.9 on December 27. 

Technical Indicators Mixed – What Next for MATIC/USD

From the daily chart above, we see that MATIC/USD remains on a clear uptrend, with higher highs and higher lows. However, the token is increasingly under bearish pressure, approaching the key support at $2.04. The 9-day MA (blue), the 4-day MA (red) and the 20-day MA (yellow) are above the price, and offering resistance. At the current trading price of $2.06, MATIC/USD is showing no signs of a rebound, with the current level also at the point of intersection with the upside trend line. If MATIC/USD succeeds in breaking below the trendline and the $2.04 level, additional bearish pressure could take the cryptocurrency lower.

$1.77 – the New Level for MATIC/USD?

We cannot tell with certainty if MATIC/USD will break below $2.04. However, the current bearish pressure points to the possibility, and taking a watch at the key zone in the next few days will offer clues on where MATIC/USD is heading next. The technical indicators are, nonetheless, against MATIC, except for the fact that the token has yet to breach the key level. If it breaks below $2.04 in the ongoing weakness, then the next level will be $1.77, which is the support zone for the token. A myriad of factors, especially the ongoing cryptocurrency weakness, could play a role in MATIC’s move to the next zone down. 

As a trader, I would keep an eye on the market sentiment and price action at $2.04, to determine whether to enter a trade on MATIC/USD. If the token successfully maintains the key level at $2.04, I would enter a buy trade, targeting the previous levels of $2.4, and potentially $2.8. If this doesn’t happen, the next level I would monitor would be $1.77. Good luck!